Performance Contracting. Energy Management for Small Water Systems. Len Hoey, PEM State Energy Office Department of Commerce

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1 Performance Contracting Energy Management for Small Water Systems Len Hoey, PEM State Energy Office Department of Commerce

2 Savings or Avoided Costs

3 What is Performance Contracting An ESCO proposes and designs a package of energy cost reduction measures, installs or implements those cost reduction measures, and guarantees the savings of the cost reductions. The issuer pays for the package over time using the stream of revenue provided by the energy reduction measures Third party verifies ESCO reconciliation report

4 Understanding Your Needs To deliver superior services to your residents To maintain sustainability as a City To train staff and educate citizens regarding energy conservation & water improvements To reduce greenhouse gases To expedite modernization of plants To reduce utility and operational costs 2009 Siemens Building Technologies, Inc. Frank Shepard

5 Business Pressures Citizen s want superior services Continually maximize efficiency and manage costs Balance goals and/or mandates for environmental initiatives with financial impact Aging & outdated plants & infrastructure Sustainability & Alternative Power sources Lack of upfront capital Balance rate increases with need for conservation 2009 Siemens Building Technologies, Inc. Frank Shepard

6 Funding Options 1. Cash 2. Bond Funds Affects future bonding capacity 3. State Tax-Exempt Municipal Lease 3 rd Party Quick & minimal paperwork Competitive financial rates 4. Revenue Bonds Increase Revenue & Billables Rate Increase or Tax Increase 5. Performance Contract Cash Utility Bills & Operating Budget Capital Avoidance Utility Rebates & Incentives A Funding Solution 2009 Siemens Building Technologies, Inc. Frank Shepard

7 Why not do it yourself? Often opportunities to reduce energy costs are well known but owners are unable to take advantage of them Capital Expertise Manpower Can you guarantee the savings?

8 Performance Contracting Advantages A Design-Build process with a single point of responsibility Provides capital Provides engineering and project management expertise Guaranteed performance/savings

9 Performance Contracting Pitfalls Failure of owner to perform due diligence Failure to understand contract Overly optimistic expectations / promises Poor project specifications IGA M&V Time must be allocated to see process through

10 Steps to a Successful Project Assemble stakeholders Create data packet for project (Application) Issue RFP Evaluate responses (select ESCO) Perform IGA Negotiate contracts ESCO contract Financial contract For State Agencies Council of State approval For Counties and School Districts receive Local Government Commission approval

11 The Timeline RFP 15 weeks IGA and 3rd Party M&V 24 weeks ESA and Financial contract 11 weeks LGC Approve and Execute ESA 3 weeks

12 The Guarantees Construction bond The construction bond ensures the equipment is delivered as specified, properly installed and properly commissioned The construction bond will cover the cost of the project completion if for any reason the contractor is unable to complete the project

13 The Guarantees Guaranteed savings bond This bond is a standing guarantee that all of the guaranteed savings specified in the contract can be paid The ESCO shall provide security to the governmental unit in the form acceptable to the Office of the State Treasurer and in an amount equal to 100% of the total cost of the guaranteed savings contract

14 Measurement & Verification Actual savings measured are compared to guaranteed savings by third party If actual savings less than guaranteed savings, ESCO pays the difference to the governmental unit The cost of the required third party M&V review is to be included in the contract

15 Assistance available from SEO Application assistance (project identification) Standard RFP available Standard Investment Grade Audit Contract available Standard Energy Services Agreement available Proposal Evaluation Training available List of qualified engineering service / M&V providers

16 Legislative Basis General Statute Article 3B through L General Statute Article through North Carolina Administrative Code 01 NCAC 41B.0101 through 41B.0901 LGC Application for Approval of Guaranteed Energy Savings Contracts

17 USI Contacts Len Hoey Web Site

18 Funding Annual Operating Budget Maintenance Costs Savings Repay Improvements Utility Costs Utility Costs (Gas, Electric, Water) Maintenance Costs Before Improvements After Improvements Savings generated fund the project! 2009 Siemens Building Technologies, Inc. Frank Shepard

19 Project Implementation Guaranteed Savings Savings PC Funding Utility Budget $ Operations Budget or Utility Bill Cash Flow M&V Costs Debt Service Debt Service Operations Budget or Cash Flow to Owner/Savings Operations Budget or Utility Bill Utility Bill Before Performance Contract During Performance Contract After Performance Contract 2009 Siemens Building Technologies, Inc.

20 Performance Contracting - A Comparison Plan/Bid/Spec Performance Contracting Financial Capital/Bond/Cash $$ You are already Spending Operating Budget Relationship Scope? Completion? Commissioned? Warranty Gone Continuous Partnership over life of contract Upfront Fees Yes None Performance & Financial Guarantee None Operational & Financial Change Orders Yes Almost Always Not Typically 2009 Siemens Building Technologies, Inc. Frank Shepard

21 Benefits of PC Solutions to Infrastructure & Operational Needs Guaranteed Results = Minimal Risk Reduced Operating & Utility Costs Best Life Cycle Cost, Not Just Lowest Price Turnkey Project Development & Implementation Saves Time & Provides Solutions! 2009 Siemens Building Technologies, Inc. Frank Shepard